A critical $16.25 billion grant program to sustain thousands of small creative venues that haven’t been able to open since the pandemic began has yet to deliver a cent of relief four months after passage, due to delays and faulty technology at the Small Business Administration (SBA). A website constructed to take grant applications closed last week after only four hours online, because of constant crashes and an inability to intake documents. It has not been restored and there’s no timetable for its return….
The disastrous situation is an example of how passing a bill is only the beginning of the policy process. Too many pundits have skipped right ahead to measuring President Biden for Mount Rushmore based on one piece of emergency legislation. But he will likely rise or fall on implementation; if beloved music venues and theaters close across the country because the SBA can’t manage a functioning website, all the legislation in the world won’t matter.
By Chris Castle
Here it is: Today is the day that the MLC is required to send out their first round of statements and payments. The deadline they gave themselves when their wrote their law.
The MLC is about to hear those beautiful words. They will hear it in English. They will hear it in Spanish. They will hear it in Bantu, French, Portuguese, Pashto, Russian, Hausa, Berber and Czech.
And songwriters will say it like they mean it. They won’t want to hear about “connect to collect” they won’t want to hear about “play your part” or the ontological definition of “match.”
They will say just one thing–show me. The MLC will hear it on the phone, in email, maybe even in person. And songwriters will want to hear everyone at MLC say those magic words. Loud. The family motto. A very personal and important thing. It should be said with conviction maybe even shouted from the rooftops.
No more hot potato. And while it may start with MLC it won’t end there. If the services think they are off the hook, there’s just one thing to say. Are you ready? You know what it is.
The money. They got it, we want it, now show it. Very simple.
But just in case it doesn’t all go swimmingly on April 15, it might be time to start thinking about drafting an affirmative obligation on your publisher to take care of any bad data in your publishing or administration agreements (or at least try–let me know how far you get). Most of what I’ve heard anecdotally about the quality of the MLC public database leads me to think that songwriters think the publisher is registering their songs correctly at the MLC. So why not put it in writing?
If you don’t, that hot potato will just keep on bouncing around if there’s not a clear place where the buck stops. The services will blame the MLC, the MLC will say you didn’t connect to collect to play your part, your publisher will blame the MLC, and round and round and round it goes.
You know what you tell them, right? The family motto.
SoundCloud is the first music service to adopt a version of the ethical pool principles in a user-centric royalty model and I have to applaud the effort. It’s a really good first step. “Fan Powered” royalties tries to connect the dots between what fans actually listen to and what fans actually pay for.
Remember, the point of the ethical pool was to do something right now to remedy the hyper efficient marketshare distributions of the “big pool” or “market-centric” royalty allocation model that is pretty much the rule with digital music services (and to one degree or another with streaming mechanicals, too, although that’s a topic for another day). I acknowledged the transaction cost involved of truly changing the model which would require renegotiating all the big pool catalog licenses. The workaround in ethical pool is to allow those who want out to opt in to a user-centric model that would be separate from the big pool. This is a way to avoid the significant transaction costs of trying to change a system that is working well for some but not all artists on the service.
SoundCloud appears to have done something very similar. This accomplishes another goal of ethical pool which is to not upset the big pool model entirely as it is working for a lot of people and there’s a benefit to the entire industry that flows from that success. By adopting this middle-ground user centric model, SoundCloud is actually able to promote its user centric method as a competitive advantage to attract independent artists to sign up with the service.
When you consider that the real choice of independent artists is to stream or not to stream because the revenues are microscopic but the cannibalization is gigantic, it is competition that is going to get the market forces aligned to produce real organic change. If services understand that offering at least some version of user centric is actually a competitive advantage, we may find that there’s greater uptake than anyone imagined.
It must also be said that fans will feel a lot better about SoundCloud’s model than the market-centric approach. It comes as abrupt news to fans that their royalty is being paid for music they don’t listen to–it’s only a matter of time until someone brings a false advertising claim against the services for failing to educate consumers about that one. And this is really the underlying issue with whatever flavor of user-centric you like: It’s better for the fans. As the erudite Martin Goldschmidt said in MusicAlly:
The bottom line, for me, is that user-centric is obviously a big win for the consumer. Long term, this will be a big win for artists, labels, distributors and DSPs. And we will all make more money.
Or as one fan said to me, I’m tired of my money funding crap. This is an isolated anecdote, but imagine what will happen if a million fans (or even 1,000) had this same reaction. All while the services are literally printing money.
As you can see from this comparison of Spotify share price to the FAANG stocks (Facebook, Amazon, Apple, Netflix and Google), Spotify has far, far outpaced the FAANG stocks in its relative growth rate. You can also see that the COVID pandemic that has decimated the artist community has been rocket fuel for Spotify’s riches and has made Daniel Ek a multi-multi billionaire all why paying out fractions of a penny to artists.
You can find the SoundCloud user centric royalty terms here. And bear in mind–we’re all better off if artists don’t feel they have to opt out of the entire streaming business in order to make a living.
by Chris Castle
Title I of the Music Modernization Act established a blanket mechanical royalty license, the mechanical licensing collective to create the musical works database and collect royalties, the Digital Licensee Coordinator (which represents the music users under the blanket license) and a system where the services pay for the millions evidently required to operate the MLC and create the musical works database (which may happen eventually but which currently is the Harry Fox Agency accessed via API).
Title I also established another first (to my knowledge): The United States became the first country in the world to charge music users a fee for availing themselves of a compulsory license. The way that works is that all users of the blanket license have to bear a share of the costs of operating the MLC and eventually establishing the musical works database (and whatever else is in the MLC’s budget like legal fees, executive pension contributions, bonuses, etc.). This is called the “administrative assessment” and is established by the Copyright Royalty Judges through a hearing that only the DLC and the MLC were (and probably are) allowed to attend, yet sets the rates for music users not present.
The initial administrative assessment is divided into two parts: The startup costs for developing the HFA API and the operating costs of the MLC. The startup costs for the API, vendor payments, etc., were assessed to be $33,500,000; that’s a pricey API. The first year MLC operating costs were assessed to be $28,500,000. Because it’s always groundhog day when it comes to music publishing proceedings before the Copyright Royalty Judges, the method of allocating these costs are a mind-numbing calculation that will require lawyers to interpret. With all respect, the poor CRJs must wonder how anything ever actually happens in the music business based on the distorted view that parades before them. You do have to ask yourself is this really the best we can do? Imagine that the industry elected to solve its startup problems by single combat with one songwriter and one entrepreneur staying in a room until they made a deal. Do you think that the best they could come up with is the system of compulsory licensing as it exists in the US? Maybe. Or maybe they’d come up with something simpler and less costly to administer in the absence of experts , lobbyists and lawyers.
My feeling is that the entire administrative assessment process is fraught with conflicts of interest, a view I made known in an op-ed and to the Senate Judiciary Committee staff at their request when the MMA was being drafted. The staff actually agreed, but said their hands were tied because of “the parties”–which of course means “the lobbyists” because the MMA looked like what they call a “Two Lexus” lobbying contract. Not for songwriters, of course.
Yet, the DLC appears to have reconsidered some of this tom foolery and should be praised for doing so. The good news is that the market’s gravitational pull has caused the allocation of the assessment on startups to come back to earth in a much more realistic methodology. Markets are funny that way, even markets for compulsory licenses. While still out of step with the rest of the world, at least the US precedent appears much less likely to have the counterproductive effects that were obvious before MMA was signed into law due to the statute’s anticompetitive lock in. And the DLC should be commended for having the courage and the energy to make the fairness-making changes. That’s a wow moment.
Hats off to the DLC for getting out ahead of the issue. I recommend reading the DLC filing supporting the revisions (technically a joint filing with MLC but it reads like it came from DLC with MLC signing off). It’s clearly written and I think the narrative will be understandable and informative to a layperson (once you get past the bizarre structure of the entire thing). The DLC tells us the reasons for revisiting the allocation:
Since the Judges adopted the initial administrative assessment regulations, the Parties [i.e., the DLC and MLC since no one else was allowed to participate even if they had a stake in the outcome] have gained a better understanding of the overall usage of sound recordings within the digital audio service industry, as well as the relative usage of various categories of services. This information has led the Parties to conclude that the allocation methodology could have significant impacts on smaller Licensees, and that the allocation methodology should be modified to better accommodate these Licensees, and that such is reasonable and appropriate. This is particularly the case as these Licensees transition to the new mechanical licensing system set forth in the Music Modernization Act (“MMA”) and navigate new reporting requirements, and further as the country continues to generally struggle through the economic and health effects of the ongoing COVID-19 pandemic. While the cost, reporting requirements, and impacts of the pandemic are experienced by all Licensees, the Parties believe that it is reasonable and appropriate to modify the administrative assessment to better address the situations of smaller Licensees.
The “old” allocation resulted in this payment structure for services buying into the blanket license (setting aside download stores for the moment):
It was that $60,000 plus an indeterminate share of operating costs that was the killer. The new allocation is more precise applicable to other than download stores:
This makes a lot more sense and one can believe that some startups actually were asked what they think. Remember, David Lowery sent an open letter to the CRJs in 2019 raising this exact point reacting to the bizarre initial administrative assessment hearings:
The Judges should take into account that no startup has been present or able to negotiate the many burdens placed on them by this settlement. In particular, they have not been able to be heard by the Judges on the scope of these financial burdens that their competitors—some of the richest multinational corporations in history—have unilaterally decided to place on them with no push back.
This isn’t to say that any would be brave enough to come forward and challenge their betters if given a chance. But they should at least be given a chance.
There are some twists and turns to the new rule which was adopted by the CRJs as a final rule on January 8, 2021, and any startup should obviously get smart about the rules. But–these latest amendments have established two really great things: First, the DLC is paying attention. That is very good for the reasons David raises. The other is that the DLC is apparently actually talking to someone other than Google and Spotify and coming up with reasonable compromises. This is very, very good. Let’s hope it continues.
We’ll be watching.
The Intercept is reporting that the Biden administration is considering appointing Renata Hesse as Assistant Attorney General for Antitrust. The potential appointment has raised eyebrows in the press since Hesse in private practice worked on antitrust cases on behalf of both Google and Amazon. Google is already under antitrust investigation and if Hesse were to become AAG she’d at the very least have to recuse herself. Is it even appropriate to appoint someone that deeply conflicted? Were there no other antitrust attorneys in Washington DC to take the job?
But it’s even worse than it first appears.
Talk to any songwriter even tangentially involved in public policy and the story is much more alarming. Hesse isn’t just any Google/Amazon attorney. Hesse has a terrible history with songwriters. Last go around when Hesse was acting AAG for Antitrust in the Obama administration she tried to promulgate a new rule for songwriters that would have greatly benefited Google as it faced a $1 billion dollar lawsuit from an organization that represented songwriters. It was never clear why the DOJ took this action. It didn’t seem to emerge from any of the DOJ staff attorneys or public comments from licensees. She alone seemed to have pushed the change. The rule was so poorly reasoned the DOJ eventually drew two lawsuits. The DOJ lost one case and dropped/settled the other before it could be decided by the courts. During the fiasco it was revealed that Hesse had purposely omitted from her official DOJ bio her private practice work for Google fending off state antitrust investigations. As a result many people including myself have speculated the entire episode only made sense if the rule change was purposely proposed to help Google. In other words it looked suspiciously like a case of high level corruption that should have been investigated. It never was.
Here are the details:
First, the two biggest songwriter organizations BMI and ASCAP have been under “temporary” DOJ consent decrees since the early 1950s. Because of this songwriter public performance licensing and royalty rates are under the control of the DOJ. A single federal judge essentially sets the rates and terms for BMI songwriters and another judge for ASCAP. (Crazy right?) In the last 20 years digital broadcasters have become adept at exploiting this process to lower public performance royalties paid to songwriters.
As a result some songwriters have left these organizations and joined smaller organizations like Global Music Rights, because they are not under DOJ control and it is sometimes possible to get better royalty rates.
In 2014 Global Music Rights (GMR), alleged YouTube did not have the performance rights to about 20,000 works by artist GMR represents. These artists included some of the biggest artists in the business like the Eagles, Pharrell Williams and John Lennon. When Google refused to take down the works a lawyer representing GMR told the Hollywood Reporter that if Google doesn’t blink, “there will be a billion-dollar copyright infringement lawsuit filed.”
Not long after this happened the DOJ Antitrust section III (out of the blue) proposed a new rule for BMI and ASCAP. So called “100% licensing.” The rule basically said, if BMI or ASCAP controlled any portion of a song they could be forced to license the full 100% of the song. Not sure how the DOJ can force someone to licenses someone else share of a song, but I’m not a lawyer. Why does this matter? If you weren’t aware most hit pop songs are written by teams of songwriters and thus ownership is often shared by many writers. Professional songwriters typically enter into private contracts (co-administration agreements) with each other stipulating that they each administer and license their own shares of a song (fractional licensing). So if a movie studio wants to use a song, each of the writers must sign off on the contract. The DOJ proposal, 100% licensing, was odd. It went against longstanding industry practice. Further the DOJ antitrust section itself required this sort of fractional licensing in many of the contracts it supervised.
Songwriters and songwriter organizations were thus stunned by this development. At least until they realized that this was clearly helpful to Google in its dispute with GMR and thus made sense in a crony capitalist sort of way. Why? Well it is highly likely that many of those 20k tracks at the center of the GMR lawsuit were co-written with BMI and ASCAP writers (BMI and ASCAP writers/co-writers some weeks represent more than 90% of music streams). Thus by forcing the BMI and ASCAP cowriters to license songs on behalf of the GMR co-writers, the DOJ would effectively take hundreds of millions of dollars in statutory damages out of this lawsuit.
That is when attention began to focus on Renata Hesse. As Chris Castle at Music Tech Policy noted at the time:
“Ms. Hesse appears to be the thought leader behind imposing 100% licensing on the songwriter community. I arrive at this conclusion by process of elimination, as the DOJ professional staff do not appear to be taking credit for coming up with it on their own. Ms. Hesse is the one who has authority over the process, at least most directly, so if the DOJ professional staff did not originate the idea, and if no one in the voluminous consent decree public comments came up with it, it must have come down from on high. At least within the DOJ or even higher.
However, it is worth noting that the ASCAP/BMI consent decree review started before Hesse took over as head of the Antitrust Division from Bill Baer.
I doubt that Ms. Hesse came up with this all on her own, so I asked myself how did this person end up being in the position she is currently in with the authority to do so much damage to so many people who don’t deserve it. Not to mention the fact that when it comes to anything that the Google network touches, which is pretty much everything in human experience, the U.S. Government–at least currently and unlike their European counterparts–only seems to be interested in enforcing the antitrust law to protect Google, not to challenge it.“
Up until this point no one had noticed that Hesse seemed to have manipulated her official bio to omit the fact that during her last stint in private practice she had worked mostly as outside counsel to Google to head off numerous antitrust actions and investigations at the state and federal level. Other juicy details emerged. It was revealed in Texas Hesse worked hand in hand with Ted Cruz to lobby the state government on Google’s behalf. That is quite a thing to leave out of your bio. Especially in the antitrust division. Hesse for some reason knew she had to downplay this. Why?
Meanwhile songwriters (and privately many licensees that were not Google) began to loudly complain how disruptive this new rule would be to the entire music licensing ecosystem. For one, songwriters were quick to inform the DOJ that much of their repertoire was subject to private co-administration contracts, and the rule would require them to violate those contracts. The response from Hesse’s antitrust division was stunning. They instructed songwriters to renegotiate private contracts or remove the songs from the repertoire of BMI and ASCAP to comply with the new rules.
The consent decrees that the DOJ imposed on songwriters are ridiculous and need to go away. However there is one good argument for them as they provide a great degree of market efficiency. The consent decrees force BMI, ASCAP, to license their songwriters entire repertoire. This in turn influences the other two songwriter organizations to license their entire repertoire as well. These are called “blanket licenses.” Thus a radio station need only obtain four licenses to enable it to freely play any song. But removing thousands if not millions of songs from the BMI and ASCAP blanket licenses would require a radio station to enter into thousands if not millions of contracts to have the same freedom to play whatever they want. This change would completely undermine the entire rationale for the DOJ to regulate music licensing in the first place. Almost everyone involved on the songwriter side (as well as many licensees) became convinced this rule change was designed to help Google. This is stunning corruption. The entire DOJ antitrust division was being used to benefit a single company. A company that one could argue is/was involved in anti-competitive monopoly.
Around this time BMI and then Songwriters of North America (SONA) a songwriter advocacy group sued the DOJ. Essentially the lawsuits argued the federal government was forcing songwriters to violate private contracts or retroactively make previously legal activity illegal. (Ex post facto lawmaking is prohibited by the constitution.) Instead of backing down Hesse’s antitrust division responded with a new and dangerously unhinged claim: The consent decrees always required 100 percent licensing so songwriter fractional licensing contracts between songwriters were always illegal. This despite the fact the consent decrees never required 100 percent licensing and in case after case BMI and ASCAP were required by DOJ to license fractionally. But most embarrassingly as we noted at the time:
“If 100% licensing already existed why did the DOJ spend the last year asking for comments from songwriters, publishers and music services on whether to make this change or not?
It was a clown show. At this point several members of congress began to poke around in the matter. One congressman asked a different federal agency, The Copyright Office to weigh in on the matter. This was precisely because Hesse had wrecked the reputation of the entire antitrust division of the DOJ. And it smelled like corruption.
Eventually Hesse left the antitrust division, but she didn’t settle the cases before she left. She left the cases to drag on. I suspect out of spite. How many millions of dollars did these cases cost taxpayers and songwriters? I’ve always thought Hesse should have been investigated, if not for corruption then at least for incompetence.
It will be a very sad day if Biden appoints Hesse to oversee the antitrust division. 80 million Americans didn’t vote for Biden because he promised to put a Google attorney in charge of Antitrust at DOJ.
We’re starting to see a narrative emerging from the digital music services in reaction to artists chafing under the misery of streaming royalties. Streamers want lawmakers to focus attention on the allocation of current period revenue that they pay to creators and deflect attention from the company’s stock market valuation (or private company valuation). That’s a grand deflection and misdirection away from the true value of artists, songwriters and their recorded music to streaming companies like Spotify. But they can’t escape the embarrassment of riches by discounting the value of stock price through deflecting attention to loss-making revenues that companies like Spotify keep artificially low through a kind of Malthusian reverse pricing power to drive growth. It may be rational for investors, but it’s not sustainable for the creators of the company’s sole or primary product.
We saw this with Pandora–lawmakers were told how much of Pandora’s monthly revenue the company paid out in royalties as though revenue was the primary metric. The deflection worked until lawmakers started realizing that Tim Westergren was booking $1 million a month in stock sales. Then it rang pretty hollow. But the commoditizers are at it again.
No matter how much Big Tech tries to commoditize music, this is not about selling widgets at a deep discount–it’s about people’s lives.
“Get Big Fast”
Let’s be clear–companies like Spotify don’t get into business to eke out a profit. They get into business to get their snouts into the trough of IPO stock as fast as possible and share that wealth with as few people as possible. (And get out of corporate governance before the chickens come home to roost.) So looking at revenue allocation without the accretive boost of stock market valuation is simply a grand deflection. Abracadabra!
That deflection is particularly galling when the executives dip into current revenues to reward themselves like drunken sailors. This is the profit fallacy—I would go so far as to say that in Silicon Valley, “profit motive” is very 1980 and long ago was replaced by the motive of “get big fast.” These companies seek to capture public stock market valuation, and share price valuation implies a belief in top line earnings and market share growth–not current period profit or–God forbid–dividends to shareholders. And “get big fast” is working for Spotify.
There is also controversy about a perceived “allocation” of music royalties payable by the streaming services particularly between record companies and recording artists or PROs and songwriters (especially the PROs and authors’ societies that Silicon Valley would dearly like to replace). The allocation theory again focuses on revenue instead of the total value transfer. It goes something like this: Streaming services pay 69¢ of each dollar for royalties. When the artists or songwriters complain, it’s not because the saintly streaming services don’t pay enough, it’s because the greedy record companies or PROs take too much of that 69¢.
There is a lot that is not said with that fallacious allocation statement. I think a focus on revenue “allocation” is the wrong way to look at the royalty issue from a policy perspective. The “allocation” focus presupposes there is an aggregate payment for music that is somehow misallocated.
Pie-ism a la Mode
This allocation or “pie” fallacy is a very familiar argument in the U.S. It often comes from broadcasters fighting equitable remuneration for recording artists on terrestrial radio by attempting to limit their total payment for both sound recordings and songs to the amount that broadcasters historically have paid for songs only. Instead of acknowledging the value of sound recordings, the platforms confound song performance royalties with “music”. They say, “We pay $X for music, we don’t care how you allocate it between songs and recordings.” This is like comparing apples to oranges and producing a pomegranate.
I call this thinking the fallacy of the pie, a derivative of the fallacy of composition. It makes creative sectors fight each other in a kind of digital decimation.
There is nothing particularly sophisticated about this strategy. But the policy challenge for industrial strategists is to how to grow the pie, not to cut smaller pieces for everyone. Growing the pie is particularly relevant when the platform seeks to monetize its valuation in the public financial markets. At that point, focusing solely on the allocation of revenue to the exclusion of the total valuation transfer is simply a kind of cruel joke.
Here’s the sad reality broken down to current per-stream rates that are entirely based on service revenue:
This is front of mind as we see reports of Believe Digital (owner of the independent pre-pay distributor Tunecore) contemplating a €2 billion IPO drafting behind the reported COVID-fueled success of streaming and the Spotify public offering. Government may play a role in requiring a share of riches transferred from the public financial markets to be shared by those artists and songwriters who gave the issuer its valuation, particularly when the issuer did not invest in the creative community.
Get COVID Profitable Fast
If profit were really the target, one could make Spotify more profitable almost overnight by moving their U.S. headquarters to Syracuse, Cedar Rapids or even Austin rather than multiple floors of the World Trade Center in Manhattan. One could cut executive compensation, one could do many things to reduce their Selling, General and Administrative costs. But profit is not the issue for them. Valuation is the issue and valuation is driven by bets on future growth. In Spotify’s case, growth is often measured as subscriber growth and subscriber growth implies competing on price because Spotify offers more or less the same product as its competitors in a triumph of the commoditizer. Which in turn implies keeping retail prices down (and Monthly Service Revenue) in a race to the bottom on subscription price and to the top on share price. You may find that analyzing the economics of who wins in streaming is similar to who wins a gas war among price cutting petrol stations.
COVID has nearly destroyed the live music business that sustained the artists who previously tolerated their mils per stream Spotify royalties. Far from being harmed by COVID, COVID has been rocket fuel for Spotify which adds to the unfairness of the “big pool” revenue share royalty system. As the COVID Misery Index demonstrates, Spotify’s growth in valuation has outpaced its fellow oligopolists:
Given the urgency of the COVID crisis, it is important to understand the difference between the creator community and other workers affected by COVID. For example, restaurants are not failing while some other entity succeeds in extracting value from their customers. As the COVID Misery Index demonstrates, Spotify’s stock price has more than doubled since the onset of COVID.
Again, Spotify’s success is largely predicated on keeping both royalties and prices low and bargaining for special royalty treatment. I don’t object to the company’s pricing decisions so much as the complete failure of Spotify to share its success with independent artists who make up a significant amount of its offering but who are doomed to scrap at the decimal point in search of a positive integer.
Instead of launching billion-dollar stock buy-back programs to juice their share price, it would be a simple thing for Spotify to credit the royalty accounts of independent artists and songwriters with a cash infusion not connected to the revenue share deflection. They have a direct billing relationship with thousands of artists and songwriters and they could simply deposit some thousands in these accounts which overnight would help balance the inequities and also provide an alternative to government support payments. We have experienced government payments to creators in Austin, and one of the biggest problems was the mechanics of getting the money from the government’s account into the creator’s account.
Spotify could just do it today as a thank you for doubling the value of their company while artists and songwriters suffered. Or perhaps Daniel Ek could just pay it out of his own pocket since he loves creators so damn much.
Whether it’s driven by the embarrassment of riches or a guilty conscience, the commoditizer’s grand deflection is back. Don’t let them fool you twice.
By Chris Castle
I’m grateful to Texas Accountants and Lawyers for the Arts, Austin Texas Musicians and the Austin Music Foundation for hosting an information webinar next week on the impact of the new blanket mechanical license under the Music Modernization Act on independent songwriters. We will also cover the nuts and bolts of dealing with The MLC, Inc. and a unit on the Digital Licensee Coordinator.
I couldn’t be happier to have two great panelists in music publisher and song data solver Abby North and my fellow Austin music lawyer Gwen Seale.
While this panel has an Austin origin, the topics are not Austin-centric and will apply to all songwriters in the world just like the MLC does.
Please RSVP to Eventbrite if you think you might attend at this link and also take a moment to complete the anonymous 10 question MLC Awareness Questionnaire on Survey Monkey at this link. The Zoom code to join will be posted through Eventbrite.
I’ll be posting some other materials, but for those who want the more nitty gritty background, you can read this package of documents at this link.
By Chris Castle
Let’s get back to justice…what is justice? What is the intention of justice? The intention of justice is to see that the guilty people are proven guilty and that the innocent are freed. Simple isn’t it? Only it’s not that simple.
From …And Justice for All, written by Valerie Curtin and Barry Levinson.
Law out of balance is no law at all. I suggest that the DMCA is just this imbalance and the unbalanced DMCA has created other imbalances that in turn transferred wealth from the many to the few. One of the biggest dangers to our society currently and in the future is erosion of the third estate (or the “musician’s middle class”) into the concentration of wealth in fewer and fewer hands. This erosion is accompanied by its inevitable trend toward authoritarianism enforced by the mandarin class of Silicon Valley. Not to mention the policy laundering operations funded by transferred wealth like the Chan Zuckerberg Initiative (that’s the Chan Zuckerberg who asked Xi Jinping to name her then-unborn child).
Serfing in the Apocalypse
This kind of neo-feudal concentration of wealth is most obvious in the tech oligarchy, especially in companies like Facebook, Google and Spotify with their dual class supervoting stock that concentrates the corporate decision making and wealth not in the shareholders but in the hands of Mark Zuckerberg, Sergey Brin, Larry Page, Eric Schmidt, Daniel Ek and Martin Lorentzen. And then there’s Amazon with the world’s richest man, Jeff Bezos—the future space mogul. (Bezos’ Blue Origin and Google’s adventures in biometrics and AI in China are examples of the second order knock-on effects of the Internet oligarchy become defense contractors.)
I also suggest that one of the driving forces that has accelerated this concentration of wealth and power over the last twenty years has been the 1998 Digital Millennium Copyright Act. Unless substantially reversed, the DMCA will continue to accelerate the wealth transfer from creators to oligarchs. It must also be said that state actors or near state actors like TikTok either profit from, promote or protect massive online piracy based in DMCA-type alibis. This topic is another conversation, but anyone who has dealt with the huge pirate sites has felt the cold hand of truly bad guys with top cover. In addition to the tech oligarchs, Russian oligarchs think the DMCA idea is really pretty groovy.
The DMCA Alibi
You’ve probably heard the expression “notice and takedown” applied to copyright online. It was the DMCA that created the “notice and takedown” alibi regime for piracy and near-piracy. These notices have come to be called “DMCA notices” and the Congressional plan that implemented that call and response has unambiguously failed. You may have also heard the expression “value gap.” The “value gap” is shorthand for illicit profits made from exploiting the DMCA loophole which itself is a prima facie case of law out of balance. The “value gap” is the predictable consequence of “notice and takedown.”
Google alone has received nearly five billion DMCA notices just in the current reporting period. That’s 5,000,000,000. I’m still waiting to see the conga line of Members of Congress and Senators who say that was exactly what they intended (and many who were involved in drafting the DMCA are still serving). I’m also waiting to hear lawmakers acknowledge that when something happens 5,000,000,000 times, it’s a feature not a bug just like the Ford Pinto’s exploding gas tank. No one ever asked them until Senator Thom Tillis began a series of hearings before the Senate Judiciary Committee’s Subcommittee on Intellectual Property earlier this year.
If we’re lucky, in coming days Senator Tillis will be introducing a legislative overhaul of this gaping wound reflecting the many hearings he’s chaired this year to investigate the DMCA imbalance that created one of the biggest wealth transfers in history. That wealth transfer is not only caused by the perpetual state of piracy or near piracy created by the DMCA, it is also caused by the cost of enforcing copyright that has fallen on all creators in all copyright categories. Not to mention the sheer scale of the burden imposed by lawmakers on creators. Hopefully Senator Tillis’s investigation will bear fruit and will right the imbalance.
And as we have exhaustively endured for over 20 years, law out of balance is no law at all. In the music business, performers—like all creators—have been effectively powerless to stop this latest great imbalance in justice created by the copyright infringement safe harbor disaster and piracy force multiplier. That value gap has hollowed out the performer community (as well as record companies) after 20 years of wealth transfer to the Big Tech oligarchs from commoditizing the recordings that performers created. And Big Tech have used their DMCA-driven profits to hire even more lobbyists around the world to create even more loopholes in the human rights of artists in the endless maelstrom of Malthusian decline. That decline manifests itself in the ennui of learned helplessness of creators around the world as companies like Google seek to impose Google’s version of notice and takedown around the world.
Notice and Staydown
But—there is a new term in our lexicon that hopefully will appear in new legislation from Senator Thom Tillis: Notice and stay down. What does it mean? It’s a mid point between a pure negligence standard and the intent of the DMCA to provide a responsible alternative dispute resolution system. Instead of the endless whack a mole iterations of catch me if you can posting and reposting of infringing works, online service providers would be required to actually do the right thing and keep the infringing work off of their service. It’s really just a properly enforced repeat infringer policy. It’s hard to believe that adults persist in this whack a mole but they do. There’s big money in those moles that don’t actually stay whacked.
How in the world did we arrive at the status quo? A page of history is worth a volume of logic to fully understand this leading edge of the Great Reset.
The Great Copyright Reset
In the late 1990s, the large ISPs had a legitimate concern about this Internet thing. If ISPs (like Verizon or AT&T) are providing ways for the many to connect with each other over the Internet, they were inevitably empowering essentially anonymous users to send digitized property to each other by means of that same technology. That property might take the form of an email file attachment (or link to a file) that contained a copy of a sound recording, movie or an image. ISPs wanted to be protected from responsibility for things like copyright infringement they had nothing to do with. (This knowledge predicate is where the games begin.)
The ISPs needed a zone in which they could operate, a zone that came to be called the “safe harbor.” The deal essentially was that if you didn’t know or have a reason to know there was bad behavior going on with your users, or didn’t have knowledge waiving like a red flag, then the government would provide a little latitude to reasonable people acting reasonably.
This safe harbor idea was a great privilege conferred upon online service providers and balanced the democratizing nature of the Internet with the need to enforce the law against bad actors. Lawmakers were caught up with the idea of bringing people together. What they didn’t realize sufficiently was some of those people previously only met on Death Row.
Artists’ rights to protect themselves were not entirely extinguished by this new safe harbor for big companies but were severely burdened. Record labels and film studios had to devote substantial resources to whack a mole that could have been spent on their core businesses–making records and movies. If a copyright owner thought there was infringement going on that didn’t qualify for the safe harbor, then the intention was that individual artists shouldn’t have to file a lawsuit, they could just send a simple notice to the service provider. If it turned out that there was a bona fide dispute over the particular use of the work, then the parties could go to court and hash it out if necessary. The notice part of “notice and takedown” was perceived as an inexpensive remedy that would be available to artists who did not want to take on a lawsuit as well as ISPs with litigation budgets. The Congress did not factor in the charlatans who would come later like Google and Facebook, neither of which existed in 1998.
This is documented in the legislative history from 1998, i.e., both before Google and and Facebook and before the Electronic Frontier Foundation discovered Morpheus or Mrs. Lenz:
This ‘‘notice and takedown’’ procedure is a formalization and refinement of a cooperative process that has been employed to deal efficiently with network-based copyright infringement.
Section 512 does not require use of the notice and take-down procedure. A service provider wishing to benefit from the limitation on liability under subsection (c) must ‘‘take down’’ or disable access to infringing material residing on its system or network of which it has actual knowledge or that meets the ‘‘red flag’’ test, even if the copyright owner or its agent does not notify it of a claimed infringement.
Sounds very civilized, don’t it? Sounds like something that could be considered to be just. How could something that sounded so right go so wrong so fast? Notice and takedown has become notice and shakedown after the charlatans arrived.
The Inevitable Notice and Shakedown
The one thing that nobody thought was that it was the intention of Congress that there would be ad networks, multinational corporations and international piracy rings whose business model is in large part built on exploiting the “notice and takedown” loophole in that safe harbor.
These organizations ignored the DMCA’s knowledge predicate and repeat infringer requirements and adopted what is essentially a “catch me if you can” version that allows them to infringe until they get caught by the copyright owner and then continue to infringe if they are not sued–the exact opposite of what the DMCA intended. What once was a reasonable exception was almost immediately tainted as a massive loophole that the government has done little to nothing to correct much less enforce.
The “safe harbor” is no longer a loophole, it has graduated to a full blown design defect as indiscriminately harmful as any exploding gas tank. So now when artists ask that some common sense be applied to this grotesque distortion of the law-supposedly passed in part for the benefit of artists-some would tell artists that it’s not up to government to tell them what the law means. As Kafka-esque as that sounds.
Will You Believe Me or Your Lying Eyes?
Isn’t it obvious that having to send a notice for the same work on the same service hundreds of thousands of times an absurd burden? In other words — is the government actually defending whack a mole with a straight face? Did the government actually intend that 5,000,000,000 take down notices in a year are a new normal? If they did, evidence of that intent is not in the statute or the legislative history. Would Congress offer protection to an exploding gas tank after they already knew it was a threat because it was designed that way?
Whack a mole is not automatic-it requires human intervention. As we saw in BMG’s precedent setting and victorious lawsuit against the ISP Cox Communications over Cox’s grotesque failure to enforce its repeat infringer policy, a person has to decide to repost the infringing file even while knowing the file is or is very likely an infringement. Whack a mole actually defies the entire purpose of the safe harbor-whack a mole is not a little latitude for reasonable people acting reasonably.
Whack a mole is a design defect. Is it just that Congress should protect any design defect?
Let’s get back to justice. Not only does the status quo require creators to tell lawmakers (including courts) what their law means, the U.S. Government has utterly failed artists with the fundamental justification for the Sovereign common to our jurisprudence and political theory.
Crucially, it must be acknowledged that the government has failed to protect artists. The government has failed to enforce the laws, essentially overseeing and giving legitimacy to one of the largest wealth transfers of all time from the hands of the many into the overflowing pockets of the few. All based on an extreme interpretation by Google and its ilk of the government’s laws. Direct challenges to these interpretations involve costly and protracted litigation — with the inescapable whack a mole continuing all the while.
It would not be unreasonable for artists to think that the whole thing smacks of crony capitalism, particularly when one of the biggest beneficiaries of the loophole is a major lobbying influence like Google. While some ISPs have at least tried to address the issue, the Googles of this world are noticeably absent.
So I would beg pardon here-I do not feel that it should be necessary for artists to tell the Congress what would be acceptable in the way of parameters for “notice and stay down”, at least not initially. I think artists have the undisputed right to ask-actually to demand-of the Congress, what was their intention?
Enter the Foxes
Don’t underestimate the knock-on effects of the DMCA wealth transfer that funds self-preservation for the DMCA beneficiaries. Who can forget Google’s dominance of the Obama Administration? It’s clear that like Google learned from Microsoft, Facebook has learned from Google (and both joined forces to try to defeat the European Copyright Directive, so expect more of the same foxes coming for the henhouse when Senator Tillis introduces his bill).
We note the irony that the ethics czar for the Biden transition team is from Facebook, as is the director of legislative affairs a former Facebook lobbyist. A former Facebook board member co-chairs the transition team and there is a sprinkling of other former Facebook board members in other roles. Three transition team members are former Chan Zuckerberg Initiative employees. And Google’s Eric “Uncle Sugar” Schmidt will have a leading role.
Once they get into power, you can expect that DMCA reform will get exponentially harder, but the Tech Transparency Project will have even more work to do.
Senator Tillis Could Make Real Progress Toward Reversing the DMCA Cronyism
The safe harbor is the government’s law. They wrote it. They voted for it. They represented voters—including creators—when they did so. They presumably have some idea what it is supposed to mean. Many who voted for it are still in the Congress. The Congress needs to come clean on what they intended. Isn’t that the better place to start? Why should artists have to tell the Congress what the Congress’s intention was?
If it was the intention of the Congress (and President Clinton who signed the law) that the current state of whack a mole was the plan all along, then let them say that — and perhaps more importantly, point to where they told the electorate that was their intention at the time the DMCA was passed in the Congress and signed into law. If it is not their intention, then it should be reversed with no daylight.
Google alone is on track to receive over five billion take down notices this year alone. If this was the Congressional intention, then let them say that. If their intention was there should be no upper limit on the number of takedown notices any one company could receive in a year, then let them say that. And explain themselves.
And let’s be clear-Google does not appear to view these billions of notices as a design defect, although that would be a perfectly reasonable conclusion. And neither do Facebook or Twitter. One has to believe that if a company the size of Google viewed billions of notices as a problem, they could fix that problem. They haven’t. In fact the number of notices grows exponentially every year. Perhaps they view billions of DMCA notices as a feature set. Because along with the billions of notices comes a fortune for Google just like Facebook, Twitter and the rest. Big Tech’s defenders would say of Pirate Bay and Megavideo, they’re just like Google. Yes, that’s right. Google is just like them and they are just like Google. Serfing on the DMCA apocalypse.
What is the intention of justice? That the guilty are proven guilty. But if lawmakers won’t tell us what it means to be guilty much less prosecute the politically connected wrongdoers, then what justice is that?
Notice and stay down is a reasonable reaction to whack a mole, and one that is entirely consistent with the original intent of the DMCA notice and takedown regime that has gone so far wrong. Hopefully Senator Tillis will be leading the charge.
It might actually be that simple. Notice and stay down.
As Arthur told the jury, “If he’s allowed to go free, then something really wrong is going on here.”
[Guest post by Chris Castle. This post first appeared on MusicTechPolicy. This is interesting because songwriters don’t often see shenanigans from Apple Music but it is probably due to the overpowering litigation magnet of the MMA. Put this in The MLC redesignation file]
Here’s an update on the bizarre saga of Apple Music and The MLC. Remember that HFA sent to its publishers this termination notice from Apple Music on Apple’s lyric and cloud services licenses (and assume for the moment it was also sent to other non-HFA publishers):
This is remarkable because the Music Modernization Act limits the kind of licenses that the MLC can administer because the blanket license only applies to a limited number of activities (on demand streaming, limited downloads and permanent downloads). It does not apply to lyric licenses or cloud services because the blanket license is not available for those rights. Those rights would still need to be licensed under the very type of agreements that Apple is terminating.
This question came up during a recent MLC webinar moderated by MLC executives Kris Ahrend (CEO) and Serona Elton (Head of Educational Partnerships). These two executives were asked the obvious question, how can The MLC do lyric licensing for Apple. An eagle eyed MTP reader sent this screen capture from the chat:
So you have to ask, if The MLC can’t license lyrics, why did Apple terminate their lyric licenses and transfer to The MLC? And what does “separately from us” mean? The answer is not really responsive to the question.
Separately from us could easily mean that while The MLC is not licensing lyrics, some other entity is. (Presumably the lyrics are from songs that are subject to the blanket license so the MLC would play a role.) Remember that the termination notice came from HFA. Could it be that “separately from us” means HFA would be issuing a side by side lyric license on behalf of its publishers?
And remember that the notice from Apple includes this language:
[W]e intend to move our licensing and royalty administration for Apple Music to the MLC starting from January 1, 2021.
Congress did not intend that The MLC offer licensing and royalty administration for DMPs like Apple. That would mean that The MLC would be paying itself for Apple’s blanket activities. That is what HFA does through a rather porous ethical wall (and for which they have been at the center of two class actions and numerous copyright infringement lawsuits and are currently a co-defendant with Spotify in another post-MMA lawsuit).
It has long been assumed that somehow some way The MLC intends to offer bundled licensing which is currently prohibited. Bundled licensing could take the form of performances, ex-US rights, sync, even general licensing.
It seems like that effort is quietly underway. What is an alternative explanation for Apple terminating a large number of agreements and transferring its licensing and royalty administration functions to The MLC? Is the plan that The MLC gets the business and HFA does the work that The MLC is prohibited by statute from performing (at least until they move the goalposts again)?
This does help to explain why there is no MLC database and all The MLC’s “data quality initiative” corrections and improvements are being performed on the HFA database (which HFA owns and will use for work not limited to the blanket license).
Curiouser and curiouser.
You may have received this notice from HFA Client Services with the subject line “APPLE LEGAL NOTICE OF TERMINATION OF AGREEMENT” which a vigilant reader sent to us:
What is interesting about this is the opening paragraph:Dear Publisher, Reference is hereby made to that certain Subscription, Lyrics, and Cloud Services License Agreement or Subscription and Cloud Services License Agreement (the “Agreement”) between Apple Inc. (“Apple” or “we”) and the publishing entity with which you are affiliated (“Publisher” or “you”)In support of the Orrin G. Hatch-Bob Goodlatte Music Modernization Act and the significant benefits this new legislation is expected to deliver to music publishers and songwriters, we intend to move our licensing and royalty administration for Apple Music to the MLC starting from January 1, 2021.Accordingly, we hereby notify you that Apple has elected, pursuant to the Agreement, to terminate the Agreement, effective December 31, 2020. If you have never entered into such an agreement with Apple you may disregard this notice.
Focus on that “lyrics” and “cloud services” part. The MMA blanket license does not cover lyrics or cloud services. That means that Apple is out of contract with the publisher concerned because they terminated the agreement. They cannot get those rights under the blanket.
Then notice that Apple says, “we intend to move our licensing and royalty administration for Apple Music to the MLC”. The MLC cannot license outside the blanket to my knowledge.
But also realize that Apple are not stupid, so this must mean something. We’re looking into it.